What are your top 5 trading rules???

[Wysiwyg]

Yes, Tharps (others?) teaching on position sizing, stop loss and take profit are really eye opening. Something experience in the market doesn`t teach.

 

[Mr J]

Buy Higher Sell Higher .....

I've already explained why that can still be viewed as buy low sell high. Your additions don't change that, and moving the stop up is just a product of riding a trend.

If a trade ends up a loss or profitable it can be argued only in hindsite.
At the time of placing any trade or exiting any trade we just don't know how good it really is. Even with stop orders, the stops will do their job but in hindsite how perfect that job was will be clear. If the trade was stopped within tolerance or exited with good R/R then its an "Acceptable" job.

It can be argued (and therefore I will do so ) that we do know how good a trade is, we just don't know the result. We aim to put ourselves in a position where we perceive the probabilities to be in our favour. If they are, and we have entered the way we think on that setup, then the quality of the entry is decided. If we apply the same thinking to the exit, then the quality of the exit is also decided, and therefore we know how good the trade is before it is even placed (at least if we execute it as planned). We just don't know the result.

Which you don't know until you have enough past data to tell you whether your Idea/method has a higher probability of success.
This doesn't necessarily equate to higher win rate either!

It's a matter of perspective (as is everything I'm debating). We could apply our performance of other trades in that setup to come up with a probability. It won't be accurate for that specific trade, but it will over that setup going forward (assuming that we know our overall winrate, and assuming that the performance of that setup will remain consistent over time - a big assumption I know).

Just elaborate on your "Perspective".

Not my perspective. Much of what I post isn't my only view on things, just one of multiple perspectives I've probably formed. This perspective suggests that if we're a +ev trader, then we assume every trade we make (that isn't a mistake) is +ev at the time we make them. Therefore, our decision is always right, and the trade is always a good one.

Example, we flip coins, I get 2:1 on heads. It lands on tails. Despite the result, it was a good trade. If we made this deal on many coins and came across a coin that hand both sides as tails, despite the fact that this specific trade was horrible, the trade can also be argued as good.

Before I was arguing high can be low, and now that bad can still be good.

Infact most entries in profit makingsystems I have tested dont perform any better/much better than random.

Ive not yet tested one which gives a result more than 10% better than random. Ie remove the entry conditon and just set random entries.
TT is a few %.
This indicates to me that its not the entry making the profit!

This is quite interesting. If you don't mind, I'd like to hear more of your thoughts on this. I know you're not saying the entry doesn't matter, but it seems to be half the battle to me. My current view is good entry, good exit. I believe they combine to give a good R:R. Better entries improve the potential profit range, and allow for tighter stops. Good exits minimise losses and maximise profit. Note that I would only consider an entry to be good if it also takes place in what we deem to be a good situation.

I give you this challenge. If you trade mechanical, remove your entry and backtest. You will find that the profit will increase/decrease very slightly. It's not the entry giving you those results, it's the management of the trade and the exit.

I may be wrong, but I can't agree. I trade waves, and if I get in too early, the probabilities are not in my favour. If I get in late, I've hurt my profit range, and perhaps so late that I enter just before the peak. I am absolutely certain that the entry is a huge deal, at least in my trading. Without a good entry, I feel the probabilities are not in my favour, and I could significantly harm my profit potential. As you say, cutting losses quickly and maximising our wins is the key, and I feel a good entry is necessary to do that. I'd love to be proven wrong, as it would make my trading that much simpler for me.

Does it make sence that buying stocks that are even overbought gives you more profit than buying stocks that ARE oversold? No, not really, it doesn't make sence, but then again, the market deosn't care where the RSI is.

It does make sense, because they're not necessarily oversold :.

 

[motorway]

Firstly, no.
Going short at every signal would not produce the same results, why? Because going short is a whole different game to going long. Im not saying that it doesn't matter if you go short or long, im saying the entry doesn't matter.

I do have the data to back it up and can provide it if you want to question it. I also have a trading system that can produce 20% CAR even through the 2008-09 crash, using random entries.

You can analyse the market as much as you want, but at the end of the day you still have no idea what the market is going to do tomorrow. You can never be 100% certain.

Motorway, i suggest you read Scott Barlows interview in Radges book. You''ll be amazed, this bloke can trade at a 10% win rate and still be ahead at the end of the year. How does he do it? He manages the trades. He doesn't even have an entry criterea, he subscribes to get entries, and wins 30% of the time. He is an extreme example of trade management, but a good one. He doesn't care less about the entry, it's the management and exit that makes the money.

I did a little experiment using Howard Bandys P<0.05 rule of shutting down a system, from another thread on here. 50% of the time for the last 250 days the market closes higher, 50% it closes down, approximately, for each stock. P<0.05 at 5 days in a row, up or down, at 50/50, so if you have a system that goes long after 4 down days, theoretically you should have a 95% win rate. In reality you have a 30% win rate.

The market isn't predictable enough to have an entry that gives you a great edge, if it was we would all be millionaires.

I know i will be proven wrong by someone showing stats of a backtested system that has a MA Crossover entry or something ridiculous, but entries are nearly always curve fitted. People analyse charts and look for characteristics that are in trades they don't want, and make a provision to filter out the stocks that do that.

Let the winners run and cut the losers short, simple.

I give you this challenge. If you trade mechanical, remove your entry and backtest. You will find that the profit will increase/decrease very slightly. It's not the entry giving you those results, it's the management of the trade and the exit.

Go and code something up in amibroker with random entries, and you'll actually be suprised at how well the system performs.

You won't make money because X moving average crossed above Y and the volume was XYZ and the RSI was under 20, the market doesn't care about all that.

Here is another example: I coded a system for someone the other day, and a requirement was that the RSI had to be under 30 in the last 10 days. Now common sence would say this is a good thing, the stock is oversold and should come up, the results were poor.... I then removed the RSI filter and backtested, the system produced more than 3x the previous CAR.

Does it make sence that buying stocks that are even overbought gives you more profit than buying stocks that ARE oversold? No, not really, it doesn't make sence, but then again, the market deosn't care where the RSI is.

Brad

Have no problem with any of that
because number of days up or down

IS RANDOM

Good entries possibly can not be found with any of the things you mention in your post
( GOOD meaning can make a difference )

And Prediction has ( depending on what you mean ) nothing to do with it

prediction only applies when NO HOW MATTERS

What most people do when they think they are predicting
is just a naive projection forward eg Your Mov average , buy RSI < 30
number up or down downs etc
No entry based on these things CAN most likely MAKE A DIFFERNCE..

What can is having a precise
defintion of trend ( mathematical precise )
and as early ( without unnessary confirmation )
recogniton of...

For an EOD trader can just 1 days data reveal exploitable trend ?
If so what other information can improve hit rate

There are many risks to reward
opportunity a very big one.

trends up down or sidways
days up to days down are RANDOM
NO "Signal" based on such can be very usefull

motorway

 

[beamstas]

Motorway,
I agree with what you are saying about the trend, getting aboard a trend is what makes you the money. ALOT of people will design a system that has a poor entry, and believe that this is what makes them money. It's called curve fitting.

I think the part where alot of people go wrong is they use an RSI, Stochastic, Moving average or some other type of indicator to try and "predict" a trend before it starts.

I agree 100% about the randomness of the days. You have just tossed a coin 19 times, each time it is heads. What is the 20th toss? Of course, it's still 50/50. Some people will try fool themselves and say heads, as the coin toss has had 19 in a row why can't it make 20? Some people will say tails, it's had 19 heads it can't possibly have another one! This is the difference between optimism and pessimism, the wise man will say that there is still a 50/50 chance, as you have said. So basing a trade off this is foolish and will never give you an edge.

Of course, if you can mathatatically define a trend and filter noise, you are doing better than me, and have probably found a valid entry that does give an edge. The problem i face is all stocks have a varying degree of zig in their zag, and to apply the same formula to every stock (in doing so will make a robust formula) is very hard to do. Well done.

Mr J.

Your timing and post is very hindsight based. The market is going to trend as it's going to trend. You can't ever be sure you are in too late until after the fact. All you can do is buy and manage the trade. We can all look back on trades and say "i should of entered sooner" or "i should have entered later", but at the time of entry you cannot possibly know, Im talking about certain entries having an edge over a random entry.

 

[nunthewiser]

Let the winners run and cut the losers short, simple.

Brad

I As you say, cutting losses quickly and maximising our wins is the key,

:.

sounds great man ......

how come i keep hearing about sticking to profit targets on next page ?

if one sticks to profit targets how does one let there winners run ?

frankly thinks a lot of cliche's that get bandied around kind of contradict themselves on a constant basis

 

[nunthewiser]

8. view most trading cliche's written in books as being mainly full of crap in real life scenarios

 

[tech/a]

J

Entry discussion will unfold.

What can is having a precise
defintion of trend ( mathematical precise )
and as early ( without unnessary confirmation )
recogniton of...

Characteristic.

(1) For an EOD trader can just 1 days data reveal exploitable trend ?
(2) If so what other information can improve hit rate

(1) Yes,I can tell a great deal about a days trading by looking at a 10 min or 60 min chart. I can reveal anticipation.
(2) Characteristic.

There are many risks to reward
opportunity a very big one.

Constant shuffle taking trades in anticipation ---off loading non or weak performers and adding strongly to those which are performing.

trends up down or sidways
days up to days down are RANDOM
NO "Signal" based on such can be very usefull

As I have found.

I believe the very first reply to this thread by Nick Radge states all we have been discussing!

1. Trade in the direction of the trend***
2. Cut your losses
3. Let your profits run
4. Decide your pain tolerance level, halve it and trade small enough that you never hit it
5. Patience and tenacity***.

Those *** are applicable to Characteristic and Opportunity.

8. view most trading cliche's written in books as being mainly full of crap in real life scenarios

Not all but agree many are accepted as gospel without investigation which would reveal their incorrect application and interpretation.
Its worth the time and effort.

 

[Mr J]

You can't ever be sure you are in too late until after the fact. All you can do is buy and manage the trade.

It is true that we can't know whether we're too late at the time we make the trade, but my judgement of when it is too late for entry comes from watching these situations hundreds of times. Usually, the retracement comes soon after I deem it judge it too late. Yes, often it continues to run, but in my observation it seems to me it is not a +ev entry. Perhaps there are other factors affecting this, such as the timeframe I trade or the size of my stops.

We can all look back on trades and say "i should of entered sooner" or "i should have entered later"

I don't. I know know precisely where I want to enter, and at what point I will no longer be willing to enter. These points are determined before I enter the trade. If I enter early or late, it is because I have ignored my acceptable range of entry.

if one sticks to profit targets how does one let there winners run ?

I suppose sticking to profit targets in the sense that one doesn't sell before that point. Either way, I don't believe in a fixed profit target, and maybe not in a profit target at all. I try to take what the market is willing to give, if that limits me to 2 points then so be it, 20 points then great. I want to let winners run, but only if the market continues to give me a reason to do so.

 

[Wysiwyg]

These points are determined before I enter the trade. If I enter early or late, it is because I have ignored my acceptable range of entry.

Holy dooly, all ye have to do is enter the trade in "acceptable range" and every trade will be right. That is fantastic

 

[Mr J]

Holy dooly, all ye have to do is enter the trade in "acceptable range" and every trade will be a right. That is fantastic

Yeah, okay, that's exactly what I meant .

 

[beamstas]

Thanks for the response(s), Mr J & Motorway.
Nothing better than a good discussion, it benefits everyone.

Brad

 

[Aussiest]

8. view most trading cliche's written in books as being mainly full of crap in real life scenarios

Lol, makes me wonder. Take what suits you, ditch the rest.

 

[MRC & Co]

:iagree:

could i read between the lines Mirc and see u becoming a "high volume" swing trader in the future?? onya m8

Hey C-man, well it's another strategy I have been working on for some time now and am very pleased with the results. Always ongoing, but am working with a bit of a team on it now, including some global macro guys who far superceed my ability to analyse the environment. It's really the result of my intraday trading, along with the influence of Soros, Tudor Jones and Druckenmiller who seemed to back up my thoughts on the markets the more I read of them which was a nice surprise.

Also, add to the part when we were rallying, that same Tuesday I believe it was, after Asia panicked out of shorts, Europe bought up worse than expected ZEW and Industrial Output and US bought up worse than expected Retail Sales. A big positive for the bullish thesis.

 

[Cartman]

am working with a bit of a team on it now, including some global macro guys who far superceed my ability to analyse the environment. It's really the result of my intraday trading, along with the influence of Soros, Tudor Jones and Druckenmiller who seemed to back up my thoughts on the markets the more I read of them which was a nice surprise.

marrying the macro with the micro sounds like a healthy strategy

do u use the Soros aching back "indicator" as well --- bit hard to plot that one on a chart

 

[MRC & Co]

marrying the macro with the micro sounds like a healthy strategy

do u use the Soros aching back "indicator" as well --- bit hard to plot that one on a chart

First point, yes, I watched a bit of Stephen Hawking lately and his melding of the quantum world with the theory of relativity, gave me a bit of inspiration! ha ha, I wish I was that damn smart!

Second point, I haven't quite mastered the "aching back indicator" as of yet, but I'm sitting in a chair deemed unsafe by OH&S standards, so I'm sure it won't be too far away! Then every trade can feel like a bad one, as it already does!

 

[Cartman]

First point, yes, I watched a bit of Stephen Hawking lately and his melding of the quantum world with the theory of relativity, gave me a bit of inspiration! ha ha, I wish I was that damn smart!

Second point, I haven't quite mastered the "aching back indicator" as of yet, but I'm sitting in a chair deemed unsafe by OH&S standards, so I'm sure it won't be too far away! Then every trade can feel like a bad one, as it already does!

lol --- thank u Mirc -- my 5th trading rule is now sorted --- "thou shalt not trade with a backache lest ye end up in a 'black hole' of despair" --i know you know what it means but someone might like to translate it into english

 

[MRC & Co]

lol --- thank u Mirc -- my 5th trading rule is now sorted --- "thou shalt not trade with a backache lest ye end up in a 'black hole' of despair" --i know you know what it means but someone might like to translate it into english

ha ha, nice melding of your own there C-man, Soros and Hawking, now that could cause some problems! A reflexive financial black hole

 

[Iggy_Pop]

1. Do not use borrowed money

2. Use money you can afford to lose (at least a percentage)

3. Do not use equity in your house to invest in shares

4. Do not buy shares with high debt levels

5. Do as your wife tells you


You may not make a lot of money but you can sleep at night, and a happy wife is always a good thing.

 

[Garpal Gumnut]

OK listen up.

Follow these rules and you will always make a profit.

1. Buy a monkey,a dart and 2 copies of the AFR.

2. Pin the Stock prices pages from the copies of the AFR to a cork board so that all stocks are visible.

3. Train the monkey to throw the dart at the pages. ( This is the time intensive part.)

4. Go long on any stock the monkey hits directly with the dart, if it falls between two, go short on both in a bear market, and long on both in a bull.

5. Ensure the monkey is adequately pissed, the first monkey I had preferred Jamesons, my most recent one will only drink Sazerac Rye, its more expensive, but he's performing better than the first.

gg

Just a follow on from these five rules.

A new study just needs a live parrot.

Ockhams Razor. A parrot, with apologies to Monty Python.

http://www.news.com.au/story/0,27574,25896489-23109,00.html

gg

 

[So_Cynical]

Punting with all of your bank all of the time.
So you use fresh air for averaging down?

Haven't averaged since late April...i mean why average after the bottom?

Must admit i did a little (new position) average a few weeks ago...and lol its come good already

As for my bank, i sorta meant that i wasn't sitting on the side lines waiting for anything....if ive just exited a position then ive got a buy order in the next day, and because i low ball...sometimes it takes a while to get filled.

100% win ratio since Oct with 10 trades and you EXIT TOO EARLY?

Yep 100% winners...top 5 average down highlights

• MRE 30 cents, now 1.11
• TRY 75 cents, now 1.72
• ENE 1.52, now 2.49
• EVG 4 cents, now 6 cents
• SUN 4.50, now 7.90

With my new positions i have been exiting within a target range (8 to 14% profit) not exiting with a stop....now with hindsight this has cost me serious money, as in lost profit...but needed to be done to free up capital for the next position....RE: my rule #5 "u cant get it right all the time".

This would be perfect as you don't follow trends---surely.

Yep...ive sorta come to the conclusion that the market of the last 9 months or so has very much suited me and my style....times are a changing. perhaps time to start trend following....just dont know if i really could get used to top buying and losing 40% of my trades :dunno: